This reject code typically appears when there’s an issue with how your closing inventory method is reported on Schedule C. Most taxpayers filing Schedule C should leave the closing inventory method set to the default option, “Cost.” However, your return indicates that the method was changed to “Other,” which is not allowed in most cases.
According to the IRS, you must either:
- Change the inventory method back to “Cost,” or
- Print and mail your return, along with Form 3115 (Application for Change in Accounting Method), for manual processing.
How to Fix Your Return:
- Select FIX RETURN.
- Go to Federal > Income > Profit or Loss from Business.
- Locate your Schedule C entry, then click the three dots on the right and select Edit.
- Scroll to Questions About the Operation of Your Business and review the inventory method.
- Make sure the method is set to Cost, unless you’re submitting Form 3115 by mail.
Once you’ve made your corrections, you may use the E-file tab in the left menu bar to resubmit your return.